Crypto crime activity has also surged with bitcoin hitting all-time highs. The new Chainalysis report provides some surprising results.
Crimes related to bitcoin and other cryptocurrencies hit a new all-time high last year, according to Chainalysis' latest crime report. In 2021, illegal addresses received a total of 14 billion US dollars. In the previous year it was significantly less at 7.8 billion US dollars. But these numbers should not be viewed in isolation.
Bitcoin hype correlates with rise in fraud cases
Because the volume of all cryptocurrencies tracked by Chainalysis alone has increased to a total of 15.8 trillion US dollars – an increase of 567 percent compared to the previous year. This is largely due to the massive increase in cryptocurrency usage in general, aided by increased hype and adoption over the past year.
If you compare the general increase in the use of cryptocurrencies with the increase in the use of Bitcoin and Co. for illegal activities, it becomes clear that the increase in crypto crime is no longer as significant. Chainalysis even recognizes an opposite trend here.
Crypto scams and rug pulls
In its report, Chainalysis identifies two main areas of criminal activity in Bitcoin space: stolen funds and crypto scams. The proceeds of the scams have increased by 82 percent - the authors were able to swindle a total of 7.8 billion US dollars. A significant portion, $2.8 billion, comes from a phenomenon called rug pulls.
In this method , the scammers collect investors' funds and then disappear from the scene as if they were pulling the rug out from under the investors' feet. Incidentally, 90 percent of these rug-pull scams are the fault of the mastermind behind Thodex. This is a scam exchange whose CEO suddenly disappeared with the exchange users' funds.
The judiciary does not sleep either
However, not all of this criminal activity involving bitcoin and other cryptocurrencies went unpunished. The law enforcement authorities were also able to record some successes in the past year. Chainalysis identifies the following judicial successes in the fight against crypto crimes:
The US Department of Justice has seized $2.3 million worth of cryptocurrencies linked to DarkSide ransomware .
The US federal tax authority (Internal Revenue Service, IRS) has been able to fix Bitcoin and Co. worth over 3.5 billion US dollars in 2021.
The London Metropolitan Police Service has seized £180 million worth of cryptocurrency, the largest cryptocurrency seizure in the UK to date.
The discovery of Bitcoin and Co. worth 3.6 billion US dollars in the spectacular BitFinex fraud case .
North Korea's golden bitcoin nose
North Korea should not be missing from the annual Crypto Crime Report. Because the "People's Democratic Republic" around ruler Kim Jong-Un has been maintaining a hacker group called "Lazarus" for several years. With this, the state repeatedly attacks crypto exchanges and fills the treasury with stolen bitcoins.
According to Chainalysis, there have been at least seven attacks in the past year in which North Korean hackers have stolen approximately $400 million worth of assets. The Lazarus group has used phishing attacks, code exploits, malware and social engineering attacks to fish for cryptocurrencies from investment firm hot wallets and centralized exchanges.
In short: North Korea earned a golden nose with poorly secured Bitcoin deposits last year. With the price explosions in the crypto sector behind them, the efforts of the hackers have paid off all the more. Compared to the previous year, the equivalent value of the captured cryptocurrencies has increased by 40 percent.
Hacks associated with North Korea - broken down by value and number of hacks. Source: Chainalysis.
According to the Chainalysis report, the North Korean hackers have now developed a rather sophisticated system to wash the stolen loot again. To do this, they send the stolen funds to decentralized exchanges and exchange the money back and forth between Bitcoin and Ether in several steps in order to reliably cover the tracks. In the last step, they then sell the bitcoins on conventional crypto exchanges in Asia.
Non-fungible Tokens (NFT): Wash Trading and Money Laundering
The analysts at Chainalysis have also taken on non-fungible tokens (NFTs). In doing so, they found that the prices of NFTs are artificially inflated in part by wash trading . With this process, the digital collectibles seem to change hands often, which makes them appear more valuable. In fact, they only transfer the wash traders between their own wallets to create artificial demand.
NFTs also seem to be becoming more and more interesting for money laundering. As Chainalysis notes, inflows from illegal sources from bitcoin scams and stolen funds have steadily increased over the past year.
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